Finance expert Martin Lewis has highlighted an “important” change to pensions that was not mentioned by the Chancellor in the Spring Budget.
Chancellor Jeremy Hunt announced changes to pensions in the Budget on Wednesday, including scrapping the lifetime allowance.
There was one change, however, which the chancellor did not mention in his speech to parliament – which also aims to encourage older people to continue working, according to Mr Lewis.
The financial expert pointed out that under certain circumstances people will be able to put more money into their pensions.
According to the budget paper, the government will increase the annual allowance from £40,000 to £60,000 from 6 April 2023. Individuals will continue to be able to carry forward unused annual allowances from the previous three tax years. This is the most you can save in your pension funds in a tax year (6 April to 5 April) before you have to pay tax.
The Money Purchase Annual Allowance (MPAA), which replaces your annual benefit after you start drawing your pension pot, will also be increased from £4,000 to £10,000 and the minimum annual benefit from £4,000 to £10,000 from 6 April 2023.
Lewis said: “However, I think the biggest rate change in pensions is one he didn’t mention, which is the money purchase allowance going up from £4,000 a year to £10,000 a year. Now, what that means is that the amount that the people who have already taken some pension money are allowed to put into their pensions.
“So at the moment the annual allowance is £40,000 and this is £4,000. Then take some money from your pension and suddenly you can only put £4,000 into it. But going forward the annual allowance is £60,000.
“Take some money from your pension, you’ll still be allowed to put in £10,000 a year, which is enough for most people.”
Lewis also pointed out what he believes is the rationale behind the Chancellor’s changes to the allowance. He added: “And of course he says the changes to pensions are about helping the people who are thinking about not working – older people in their 50s and over who are thinking about not working, actually encouraging them to work .
“And I think that money purchase allowance would be a big one in there.”
Among the measures announced in the budget was a major expansion of state-funded childcare aimed at boosting economic growth. Hunt also revealed he would add £11bn. to the UK’s defense budget for the next five years.
He said the Office for Budget Responsibility (OBR) now predicts Britain will not enter a technical recession this year and the government “will meet the Prime Minister’s priorities to halve inflation, reduce debt and grow the economy”.
Despite “continued global instability”, Hunt said, the OBR expects UK inflation to fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023.